The Necessity of a Category Management Knowledge Store Inside of Procurement Departments

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Important Knowledge in Category Management -- the specifics for Procurement Organizations

The most vital data and details needed by professionals employed as Category Managers may have been written about countless times, e.g. spend by supplier, category, business unit etc. -- there's a good example mapped out in the following paragraphs. Suprisingly maybe when most people come to hunt for this sort of information, it's not easy to find. Even so, it’s absence is unquestionably known and lamented by the Category Managers that must play ‘Spreadsheet Detective’ in an effort to manually bridge the information gap!

Today we're switching the focus to a second level connected with category knowledge that's not found itself written about or codified so far as we're aware. This second tier data is of a granular kind and can differ drastically between categories particularly when even the most basic questions haven't already been addressed. This provides truly innovative knowledge and category strategies that fully connect with the organisation.

The main value of putting in the additional effort is gained whenever negotiating with suppliers as the data obtained will offer important insight to costs and determine the opportunity to go after a reduction or add value enough to provide a transformation to the relationship with the supplier and additionally making management of them easier.

Different types of Tier 2 Category Specific Knowledge

The Top 10 different types of knowledge preferred by Category Managers:

1. Cost Breakdowns: Cost breakdown or PPCA activity determines the main cost factors that are usually suffered by the supplier providing services or products. Every suppliers cost is divided in to its most important constituents for instance, the cost of raw materials and travel and the like. Once that is completed it's much easier to compare suppliers against each other. Obviously, using this method also prevents making assumptions and helps to recognise not just what makes up almost any particular cost as well as what drives it. As an example, where logistics is definitely a high % of the overall cost price then a increase in gasoline or diesel prices will probably impact the overall cost.

2. Specification Mapping: When you are evaluating cost savings from a supplier, this type of categorisation strategy is a massive help. However, whenever discovering opportunities during the creation of a category strategy, it is recommended to review spend in depth. A great deal of analysis is needed to do this. It needs to go into the tiniest details of the constituent part of a product or a service as these can be the principal drivers driving the cost price. This information will make it possible for detailed Value Analysis activities to be performed. Don't ever disregard the tiniest details of your product or service, it may be one of the keys to a new opportunity to help reduce cost.

3 End Product Linkage: To understand what products connect with other types of products (or services) used by end consumers the particular suppliers sub-categories will need to be matched with the end item. Use this to encourage suppliers to offer best pricing and/or innovation, to allow them to feel directly connected to business development with the end customer and can have an impact on demand for their own products and services.

4 Benchmarking and Unit Value: Unitisation is where spend information is divided by a suitable variable eg area, length, customer satisfaction etc. This allows benchmarking across diverse suppliers or parts of an organisation, in order that variations in general performance should be identified. Cost reduction occurs when beneficial habits are recognized and then shared while poor practices are eliminated or re-engineered. An illustration worth sharing is where the total cost for every retail outlet of advertising spend led to regional accents being used in radio advertising campaigns.

5. Operations Data Overlay: Getting a alternative product or service that directly compares with the original one is simple to validate with regard to cost differences. Of course, pinpointing pricing differences where the substitute product or service is not the same is far more troublesome. Evaluating the total cost of ownership can be accomplished with the aid of operations data files which as well as verifying price variations may also realise additional opportunities. For example, these kind of total cost opportunity scenarios can occur if a completely new additive is used which is two times as effective as the old one, or where the new motor oil filter for a car or truck is claimed to be able to last x kilometers further before replacement, compared to the current filtering system.

6. Revenue & Profitability Overlays: Locating areas where procurement people are able to get better cost prices and/or revenue through the course of category reviews is essential practice. The attention is now on the combined costs of finished products or services. Cross-functional teams may then get the job done collaboratively to either determine potential cost reduction opportunities or retain the guarantee of high revenue sales. By working in this way, cross category possibilities are usually identified that may not have already been identified when following single category targeted way of working.

7 Supplier Perception Data: This is structured qualitative responses coming from suppliers and internal stakeholders concerning the present condition of a relationship. It detects instances of weakness and also potential areas for development in relationship quality. It helps to determine how significant the organisation is as a customer to the supplier. Usual matters asked about include things like: Are your tactics aligned? How effectively does the relationship work? How well are the organisation’s business demands being delivered through the relationship? What improvement opportunities are obtainable? Taking this feedback and accepting it is not necessarily easy nevertheless category managers will find it very helpful when discussing strategy.

8 Overlaying Market Data: Industry data that include utility costs, metals costs, chemical costs, labour rates etc. really should be available to relevant procurement team members. This can be mainly because the organization is directly purchasing the commodity in question, or perhaps it is a key component in a supplier’s cost base and the business ought to maintain a record of changes in that cost base.

9 Consumption Profile Wherever seasonal demand profiles are present they must be planned for and evaluated. This kind of empathic approach with suppliers will help your SRM (Supplier Relationship Management) as their demands are better understood and also prepared for.

Next Steps and Insights:

You will find resources worth looking at about this topic by Future Purchasing. on their site.

The top category managers will develop a strategy based on a great procurement knowledge. They'll make it happen with less difficulty plus the approach is straightforward for them. The probability of successful change programs are raised as a result. Taking this method is known as a hallmark of leading category management exponents and frequently can result in more than 45% additional savings in contrast to those whose approach is less vigorous.

Making certain every one of the category managers follow the same exact approach is essential so the method has to be mapped out to ensure consistency.

The most forward thinking businesses have champions of this approach whose duty it is to ensure that the procurement knowledge database is always updated ,freeing up the category management team to make use of the information for their strategic thinking.

The most effective way we have experienced “Procurement Ready” knowledge bases be put together and developed is where Procurement prioritises the need for this proficiency and creates a plan to make it happen.

Making category management a central business competence of modern procurement departments is a high priority.

Both public and private sector companies need to provide procurement kpi’s efficiently and in the right way. Following the process above will bring about an organisations step change in delivering value. Getting a procurement consultancy that can help you through the process is generally the easiest way to go and keeping away from the countless stumbling blocks out there.

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